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A “Breathing Space” for Debtors

Debt in the UK seems to be an ever increasing problem with the recent news that two parliamentary committees have urged the UK government to launch an independent inquiry into the £200 billion worth of debt collectively facing British households.  The current level of debt has come about on credit cards, personal loans and car deals and debt is now at the same level as it was before the 2008 financial crisis hit.  Moreover, there have been warnings lately from the Bank of England that interest rates are likely to rise as a result of rising inflation coupled with the burgeoning skills shortage we have in the UK and this is likely to get worse in the wake of Brexit, increasing the pressure on incomes. 

Last week saw the government attempting to address this situation following intense pressure from rebels in the House of Lords who threatened to vote down the Financial Guidance and Claims Bill.  These rebels had all our interests at heart when they insisted on the Bill being amended to include a “breathing space” when it comes to debt.  As a result, the Treasury confirmed last week that help for those in debt will be the subject of a consultation and will written into law by 2019, good news for all of us.  Scotland has been ahead of the game here and already has a similar scheme in place so the plan applies to England, Wales and Northern Ireland. 

The “breathing space” concept was promised in the Conservative party manifesto and mentioned in the Queen’ Speech.  It’s a concept that has been welcomed by debt charities across the UK, although StepChange claims that debtors need protection beyond any six week grace period. 

The House of Lords rebels also want a ban on pensions cold-calling included in the Bill and the Department for Work and Pensions (DWP) announced that the ban would be included but does not have a date for this as yet. 

Let’s take a look at what the Bill is likely to mean for those struggling with debt.  Under the plan, people affected by debt would be exempt from further interest, charges and enforcement action in order to give them a breathing space to seek advice on their debt.  The exemption period is likely to last six weeks and the plan include offering better legal protection for debtors once a repayment plan has been instigated.  StepChange is calling for protection from creditors at every stage of the process, saying that protection is necessary between the breathing space period and any statutory repayment plan as an interruption of the protection would further destabilise family finances.

As for the ban on cold-calling, it’s already illegal to cold-call to try to sell a mortgage but not when selling pensions.  The Conservative rebels want the cold-calling ban to include texts and emails as well as phone calls.  In the past, many people here in the UK having been scammed and persuaded to withdraw cash from their pension to move it into unregulated investments such as car parking spaces and storage schemes.  This new Bill is the ideal time to put legislation in place to ban cold calls of this type.